Why inequality persists in America

For about a century, economic inequality has been measured on a scale, from zero to one, known as the Gini index and named after an Italian statistician, Corrado Gini, who devised it in 1912, when he was twenty-eight and the chair of statistics at the University of Cagliari. If all the income in the world were earned by one person and everyone else earned nothing, the world would have a Gini index of one. If everyone in the world earned exactly the same income, the world would have a Gini index of zero.

The United States Census Bureau has been using Gini’s measurement to calculate income inequality in America since 1947. Between 1947 and 1968, the U.S. Gini index dropped to .386, the lowest ever recorded. Then it began to climb.

Income inequality is greater in the United States than in any other democracy in the developed world. Between 1975 and 1985, when the Gini index for U.S. households rose from .397 to .419, as calculated by the U.S. Census Bureau, the Gini indices of the United Kingdom, the Netherlands, France, Germany, Sweden, and Finland ranged roughly between .200 and .300, according to national data analyzed by Andrea Brandolini and Timothy Smeeding.

But historical cross-country comparisons are difficult to make; the data are patchy, and different countries measure differently. The Luxembourg Income Study, begun in 1983, harmonizes data collected from more than forty countries on six continents. According to the L.I.S.’s adjusted data, the United States has regularly had the highest Gini index of any affluent democracy. In 2013, the U.S. Census Bureau reported a Gini index of .476.

The evidence that income inequality in the United States has been growing for decades and is greater than in any other developed democracy is not much disputed. It is widely known and widely studied. Economic inequality has been an academic specialty at least since Gini first put chalk to chalkboard. In the nineteen-fifties, Simon Kuznets, who went on to win a Nobel Prize, used tax data to study the shares of income among groups, an approach that was further developed by the British economist Anthony Atkinson, beginning with his 1969 paper “On the Measurement of Inequality,” in the Journal of Economic Theory.

Last year’s unexpected popular success of the English translation of Thomas Piketty’s “Capital in the Twenty-first Century” drew the public’s attention to measurements of inequality, but Piketty’s work had long since reached American social scientists, especially through a 2003 paper that he published with the Berkeley economist Emmanuel Saez, in The Quarterly Journal of Economics. Believing that the Gini index underestimates inequality, Piketty and Saez favor Kuznets’s approach. (Atkinson, Piketty, Saez, and Facundo Alvaredo are also the creators of the World Top Incomes Database, which collects income-share data from more than twenty countries.)

In “Income Inequality in the United States, 1913-1998,” Piketty and Saez used tax data to calculate what percentage of income goes to the top one per cent and to the top ten per cent. In 1928, the top one per cent earned twenty-four per cent of all income; in 1944, they earned eleven per cent, a rate that began to rise in the nineteen-eighties.

By 2012, according to Saez’s updated data, the top one per cent were earning twenty-three per cent of the nation’s income, almost the same ratio as in 1928, although it has since dropped slightly.